Cost Segregation Analysis
Does Your Property Produce Income?
Cost Segregation Studies could cut your tax payments
through increased depreciation deduction in early years of ownership.
Who Benefits from Cost Segregation Studies?
Cost Segregation Studies benefit almost everyone who owns Income-Producing Property: facilities such as manufacturing plants, industrial parks, research labs, financial institutions, office buildings, hotels & resturants, retail stores, apartment complexes and shopping centers—even single family rental units.
Cost Segregation analyzes property costs to segregate allowable short life assets from longer life Real Property costs. It’s an IRS-approved method of re-classifying certain components and improvements of a commercial building from real to personal property. This process allows the assets to be depreciated on a five-, seven- or 15-year schedule instead of the traditional 27.5- or 39-year depreciation schedule of real property.
Examples of Savings Provided through Cost Segregation Studies*
*Savings vary by industry
Actual Savings Provided through Cost Segregation Studies
Manufacturing Facility—Tenant Improvement Analysis
Project cost = 1,671,450
Date place in service = 2002
Amount moved out of 39-year life to 5-, 7- & 15-year lives = $1,379,000
1st year benefit with 30% bonus depreciation = $215,000
Office Building—Retroactive Study
Purchase price = $2,794,000
Date place in service = 1996
Amount moved out of 39-year life to 5-, 7- & 15-year lives = $445,000
1st year increased depreciation = $266,200
1st year benefit with change of accounting = $93,170
Single Family Rental Unit
Purchased in 2005
Tax year ending 2009
Purchase price: $500,000
Land value: $150,000
Building value: $350,000
Total amount of asset costs reclassified to shorter life assets: $105,000
Net present value of all savings: $17,000
Do CPAs & Tax Preparers Recommend Cost Segregation?
Yes! The Journal of Accountancy strongly supports the benefits of Cost Segregation Studies. CPAs and Tax Preparers have helped save their clients uncountable tax dollars by recommending Cost Segregation Studies.
Can a Cost Segregation Study be Performed Retroactively?
Yes! Cost Segregation Studies can reach back to 1987 and prior returns are not amended. The IRS calls this a Change in Accounting Method (IRC 481(a) adjustment) and increased tax deductions are made in one year. Since 1990 the IRS has not challenged cost segregation as long as an Engineering Study is included in the cost segregation study.
Want a free analysis of possible tax savings from a
Cost Segregation Study of your income-producing property?
Call 530-795-5536
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